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Volume 22 Number 18, October 7, 2002

(Excerpted From Page 5)



Sen. Paul Sarbanes (D-MD), chairman of the Senate Banking Committee, and Sen. Richard Shelby (R-AL), who next year will be the panel's ranking Republican, warned the banking industry that the Gramm-Leach-Bliley Act will not be the last word on privacy and that stronger privacy protections eventually will be enacted.

At a September 19 hearing, Sarbanes and Shelby agreed with pro-consumer testimony that Americans deserve more privacy and that States rights therefore needed to be preserved.

They also challenged industry assertions that the First Amendment barred Congress from enacting privacy laws that would limit banks' uses of personal data.

Noting industry's position during the 1999 GLB debate that there should be no privacy protection, Sarbanes directly addressed John Dugan, a Washington attorney representing the Financial Services Coordinating Council (FSCC).

"Mr. Dugan, I have to say to you and your clients here today, this issue has not reached a point of repose in my judgment. I don't think the current provisions about privacy protection are perceived by most people as being adequate. And therefore I think this issue is going to remain on the agenda, Sarbanes said.

"It seems to me that it behooves those interested in this subject . . . to think about in a positive and constructive way what kind of system could provide this extent of protection that most people would conclude were appropriate and put the issue to rest," Sarbanes continued.

"Otherwise, it 's my prediction, if we continue along in the current path, there will be the equivalent of Enron and Worldcom one of these days, in the privacy field and we may well end up with a regime that will make you ask, 'How did we get to this point?' And the answer is, 'You got there because you weren't trying to work through to a positive and rational solution,'"

Shelby said: "The people ultimately are going to prevail, no matter how much money is spent (by industry), because this is an important right of the people."

Sarbanes opened the questioning by citing an FSCC pamphlet, in which Professor Fred Cate, of Indiana Univ., argued against opt-in in favor of opt out because the two standards essentially gave consumers the same level of protection. Here is an excerpt from the exchange:

Sarbanes: Am I to take from this statement that you support requiring opt out for the sharing of any financial information ?

Cate: I think that would not be accurate that I would support opt out for all financial information..

Sarbanes: You make the point here that opt out gives the consumer exactly the same level of control and therefore you should use it. The alternative to opt out is opt in, and then you are very critical of opt in. Should we have opt out at least as a starting point or at as a minimum for the sharing of financial information?

Cate: I would not support that.

Sarbanes: How does that square with your statement?

Cate: It squares in this way. If there are areas or uses of information that Congress believes that consumers should have control over, then I think opt out is a better and less extensive system. I personally don't believe under the First Amendment that Congress has the constitutional authority to extend to consumers the right to control all uses of their financial information.

Sarbanes: You don't think the information belongs to the consumer?

Cate: I think the question of who it belongs to is more or less irrelevant. Under the Constitution, I don't think Congress has the authority to use the power of the courts or federal financial regulators to enforce that sort of restraint on the flow of information.

Sarbanes: To opt out as well as opt in?

Cate: Yes, but I believe the opt-in restraint is more severe so the First Amendment impediment would be greater.

Sarbanes: So if I'm a consumer and I give it to a financial institution, it's then gone. They can do with it what they wish?

Cate: There are many uses of information that if they don't present a risk of harm . .(interrupted)

Sarbanes: Who should make that judgment? Should I make that judgment as the one who provided that information? Or do you get that information from me for a limited and specific purpose, and then once you have it, can the financial institution can turn around and do with it what you will?

Cate: I believe it is a matter of law that if it is obtained with an express condition it will not be used elsewhere, as has been enforced by the FTC, then that restraint should be enforced. But I think the Constitution limits the power of the government to create an impediment at the start of all uses of financial information absent some form of compelling governmental interest.

Sarbanes: What do you think of that Mrs. (Phyllis) Schlafly? (of the conservative Eagle Forum)

Schlafly: I'm amazed. I think information about what I do and what I buy is my property. I don't believe it belongs to somebody else. If the United States stands for anything, it's property rights . . .

Sarbanes: So Professor Cate uses the argument in this pamphlet that you shouldn't have opt-in because you have opt out. So I just asked him, well, does he then apply opt out to all aspects of providing information, and now I find out that 'no, he doesn't.' It's sort of a disingenuous argument.

Minnesota Attorney General Mike Hatch said that there was a compelling state interest to curb the $15-20 billion in telemarketing fraud, targeted mainly at seniors, facilitated by the sale of credit card account information to telemarketers.

North Dakota State Rep. Jim Kasper said that major bank lobbyists used a combination of misinformation and fear tactics in a successful campaign to replace the State opt-in law with a statute modeled after GLB. In June, North Dakotans voted 73-27% to reinstate the opt-in standard. Vermont Attorney General William H. Sorrell predicted that the legislative fight in States was only beginning.

Schlafly's comments about property rights intrigued Sarbanes, who said he had not given much thought to the property dimension until she testified.

"If it means so much economically to these institutions to get this information and use it, it obviously it has some kind of property value, and it starts out coming from the consumer. . . . That value ought to be protected our perhaps compensated, which raises issues beyond privacy," Sarbanes said. A video of the hearing, and witness statements are at available at:

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